McLeod Russel Sells 12 Assam Tea Estates

McLeod Russel is selling off several tea estates in Assam.

McLeod Russel, the largest tea plantation company in the world, announced the sale of 12 estates in eastern Assam last week, continuing a decade long pattern of divestment by multinationals.

The memorandum of understanding is subject to regulatory approvals, which are expected in the next few weeks.

These are large estates producing a combined 10.5 million kilos of tea in what is considered one of the best tea growing areas in the world. The $70 million liquidation valued the gardens at less than $1 each. The company annually produces around 67 million kilos from 48 tea gardens of which 43 were in Assam and 5 in West Bengal. During the period 2010-14 McLeod sold several Indian tea gardens and increased its holdings in Rwanda (4.5 million kilos), Uganda (17 million kilos), and Vietnam (8 million kilos). Global production is greater than 100 million kilos.

Mumbai-based M.K Shah Exports Ltd purchased eight of the gardens in the Doomdooma region of eastern Assam and paid INRs331 crore ($49.1 million). Shah paid an average $5 per kilo produced (INRs 340 per kg of production) for the produced 97 million kilos last year.

Kolkata-based Luxmi Group purchased four gardens near Moran in Assam’s Dibrugarh district.

Rudra Chatterjee, director of Luxmi Group, which owns marquee the Makaibari tea estate in Darjeeling, said that the company is “selective” about its purchases. “We have bought into only the best tea growing geographies and Moran certainly is among one of the best tea growing regions of Assam. They are good gardens. And they do not come to the market often,” he said. Luxmi group paid INRs 141 crore $20.9 million) for the gardens. The four gardens sold a combined INRs88 crore ($13 million) tea in 2017.

McLeod Russel executives said the company will use the proceeds to repay debt and buy back $15 million in shares. The deal is valued similarly to a $74.2 million divestiture by the Khaitan family (Khaitan India) in 2017. McLeod Russel shares climbed 2.6 percent on following the announcement. The company is expanding its packet tea business.

McLeod last year produced about 67 million kg of tea in Assam and Dooars in Bengal and buys another 20 million kilos from independent growers. Production in India will decline to about 50 million kilos on the company-owned estates.

“We are pleasantly surprised by the interest shown by various players in the properties being sold. The transactions will bring balance to our three portfolios: own production in India, Africa and bought leaf,” said Kamal K. Baheti, McLeod’s chief financial officer. The company produces 30 million kg in Africa and processes 20 million kg of bought leaf annually. A note from MK Shah Exports Ltd said the deal is expected to conclude soon, once all necessary approvals are in place.

McLeod is also exploring the sale of four more estates in the Dooars region of West Bengal, industry sources said.

Luxmi paid a slightly higher price at which it sold eight gardens to Mumbai-headquartered M.K. Shah, where the company paid Rs 340 per kg of production. The combined annual production of the eight gardens sold to M.K. Shah is 9.7 mkg of tea.

Rudra Chatterjee said that his company focuses on three things: quality, environment and ethics. These gardens originally belonged to Moran Tea. They fit the philosophy and culture of Luxmi Tea, he added. “There are challenges in Assam, but we still see value in these estates which date back to late 19th century,” said Chatterjee, adding his company has traditionally been run by planters.

Akhil Ruia, chief executive officer, James Warren Tea Ltd, said McLeod Russel has set a “benchmark” for the industry. McLeod Russel finalized the deals almost overnight, and their approach was reminiscent of the old days when deals were done with a handshake, courteously, and with a long-term relationship in mind.

“The two deals are examples of how companies should buy and sell tea gardens,” Ruia said.

Sources: The Telegraph, Livemint